The thinking behind this blog is really simple: The guilty should be prevented from reoffending and the innocent should not be convicted -- not very complex but often not achieved.

The spotlight is also thrown on feral law enforcement

Sunday, December 02, 2012

How one innocent British family were brought to their knees by the taxman

One businessman tells how his life was destroyed after being wrongly accused of fraud by a British Gestapo

Rick Hone will never forget the morning of February 5, 2009. “I was in the car when I got a phone call from the office. The voice at the other end of the line was hysterical. I couldn’t really understand what was happening. I just knew I needed to get back to base immediately.

When he returned to Abbey Forwarding in Woolwich, London, the drinks warehousing business of which he had been a director for five years, he was shocked by what he saw.

”There were about 20 officers from HMRC [Her Majesty’s Revenue and Customs, the tax authorities],” he remembers.

“Some of them were already changing the locks on the doors. Others were going through the company’s documents and computers, packing them up to take them away.”

One officer came up to Mr Hone and told him: “You owe over £5million in taxes. You can’t pay it. The company will be closed down to protect the creditors.”

He introduced a woman whom he said had been appointed liquidator by HMRC to liquidate Abbey Forwarding.

“She told me that I had just been sacked, along with half the other staff,” Mr Hone remembers.

“She would sack the rest in four to six weeks time: for the moment, she needed their help in winding down the company.”*

The woman was Louise Brittain (correct). She now works for Deloitte, charges around £750 an hour, and is described as very tough and experienced. In 2010, she was ranked 17th in Accountancy Age’s list of the industry’s top 100 power players.

She has said that she works out “the pinch point for the fraudster in advance. It could be their family or a house they’re particularly emotionally attached to.”

Having identified it, she goes for it. Mr Hone’s 'pinch point’ was his business. He and his fellow directors, Richard Mills and brothers Pat and William Owen, whose father had started the company in 1971, didn’t know what to do. “We were looking at financial ruin. Louise Brittain told us our personal bank accounts had all been frozen. We had been ejected from our own company. Thirty-two people had lost their jobs. We didn’t even know where we would get money to live on.”

The action by HMRC had come out the blue. “Our business, systems and accounts had been given a very thorough going-over by a man from HMRC only a month prior to the liquidation order,” Mr Hone recalls.

“We had a letter back from him which gave no hint that we were suspected of fraud. In fact he said our accounts were in order.”

I have seen that letter. It identifies a failure to keep some records according to approved protocols, but also states that “no inaccuracies were identified.”

So what had persuaded HMRC that Abbey Forwarding was “at the centre of a large, multinational, multimillion pound fraud”?

It had a turnover of several million pounds a year on the business of storing and arranging the transport of beer, wines and spirits. The taxes on alcohol are a large part of the retail price, and a great deal of money can be made by avoiding them. But why, having been through Abbey’s books and not identified anything which indicated fraud, did HMRC think the company was engaged in avoiding taxes?

The details of HMRC’s case changed several times: its essence was that its directors had systematically aided and abetted the evasion of the duty on the drink they stored and transported. But it was based on suspicion, assertion and the conviction of its officers that fraud was being perpetrated, rather than hard evidence.

“It was a nightmare, everything that we had built up over years of hard work was destroyed in an instant,” says Mr Hone.

“And the worst thing was, we couldn’t even appeal against HMRC’s order to liquidate Abbey because of its assessment that we owed £5 million.”

When the liquidator takes over a company, and the employees are sacked, the directors all become ex-directors. They have no standing in the company - legally, they no longer have any relationship with it. So, in law, they cannot appeal a judgment affecting the company. The person who can appeal is the liquidator. But the liquidator, although appointed by a judge, is selected by HMRC.

That Catch-22 situation looks very unfair to the ordinary citizen, who can be crushed beneath the juggernaut of a huge state agency, without most of the usual checks and balances to ensure that it is not misusing its power. Mere suspicion by HMRC officials that fraud is occurring can be enough to ruin a business.

HMRC can apply to a judge at an “ex-parte” hearing: one at which the company it wants to liquidate is not represented, and so cannot defend itself.

That is what happened in the case of Abbey Forwarding. The judge admitted he did not have time to go through in detail the evidence that allegedly proved their involvement in “large-scale fraud”.

He was persuaded that “these gentlemen are fraudsters.... there must be a risk, if they are given even a chink of light, of moving assets, removing computers, shedding documents. [But if] a liquidator can go in, properly armed in terms of numbers of people, none of this will be possible.”

The judge agreed to the appointment of a liquidator. But in fact, “these gentlemen” were not fraudsters, and HMRC’s “evidence” turned out to be spurious. The judge who granted the liquidation order could not have known that at the time because he was not given the opportunity to test that evidence. And what happened subsequently shows the dangers of granting liquidation orders on the word of HMRC alone.

Eighteen months later, a different judge was given the opportunity to assess HMRC’s evidence in detail. Ms Brittain, as liquidator, decided to sue the former directors for “malfeasance”: they had failed in their duty to operate the company honestly. Judge Lewison was given the task of assessing whether or not HMRC’s claims about Abbey’s former directors were true.

He found that they were false. Ms Brittain had, for example, alleged that on 301 occasions, HMRC had stopped lorries recorded as having picked up cans of beer from Abbey’s warehouse -- but each one of those lorries had, when stopped, been empty.

This showed that Abbey was part of a conspiracy to sell the alcohol without paying the duty owed on it.

But Judge Lewison discovered that, in fact, there were only three occasions when HMRC stoppped empty lorries from Abbey. As the judge pointed out, HMRC and Ms Brittain had exaggerated “by a factor of a hundred”.

How such an allegation came to be made was, as Judge Lewison dryly observed, “unexplained”. But, whatever the explanation, HMRC presented sworn evidence to the court that was untrue. Furthermore, on each of those three occasions, there was an innocent explanation.

Judge Lewison was astonished when one HMRC employee admitted that he had no evidence that Abbey had been involved in fraud, but maintained that he had no proof that it was not involved in criminal activity -- which, as the judge pointed out, is not grounds in law for liquidating the company.

In July 2010, he found that there was not a single item that proved that anyone at Abbey had been involved in any conspiracy to defraud HMRC, or indeed any fraud, and he dismissed the action against Mr Hone and the Owen brothers.

It was an enormous vindication for them. In the 18 months since Ms Brittain had taken over their company in order to liquidate it, their lives had been total misery. “I came very close to suicide”, Mr Hone told me.

“It just seemed so hopeless. Every possible way of proving my innocence, of getting my business and my life back, was blocked. The strain on our family was terrible. My son felt he couldn’t go to university: he had to start earning. My mother’s pension was tied up in the business. The legal bills were huge. We had to mortgage everything, and borrow as much money as we could.”

Mr Hone, from Chiselhurst, Kent, who has been married for 26 years, said: “The liquidator took possession of my mobile and called every single person in my address book, including my mother and godson, and asked them how much money I owed them.”

HMRC and their lawyers were ruthless. Two months before Judge Lewison reached his decision, they sent a letter reminding the directors that they were “bound to lose all of their assets and are all likely to go bankrupt”, and that there would be actions against their “family members who have profited unduly from Abbey”.

It warned them that they could only “avoid complete ruination” by admitting their guilt and settling the case.

”We knew we were innocent,” stresses Mr Hone.

“We were never going to give in, not even if they took everything from us.”

And despite Judge Lewison’s ruling, they came very close to doing precisely that.

Not only did HMRC maintain they had been right to close the company, they increased the amount owed to £7million. Ms Brittain, the only individual with legal standing to appeal HMRC’s assessment, refused to appeal it. HMRC’s strategy seemed to be to wear down Mr Hone and his fellow directors by attrition: there were further hearings, costs mounted.

Backed by the state, HMRC had infinite funds. They knew that their opponents had very limited resources.

But they did not give in. They won a series of rulings against the prevaricating tactics of HMRC. On August 4, 2011, five days before their appeal against HMRC’s assessment and tactics was finally to be heard in court, HMRC withdrew their claim that Abbey’s ex-directors owed £7 million in taxes and duties.

In a highly unusual step, Ms Brittain stepped down as liquidator. A new liquidator has been appointed on the recommendation of Mr Hone’s lawyer. He is still awaiting delivery of the relevant documents.

Last week, Mr Hone and the Owen brothers were in court again, suing the liquidator and HMRC for damages for having wrongly frozen their personal bank accounts. After that, they hope to launch a case against HMRC for the loss caused by the liquidation of their company, which amounts to millions of pounds in legal and other fees.

What happened to Abbey Forwarding is not an isolated case. Lawyers who specialise in liquidation proceedings note that HMRC frequently use ex-parte hearings to obtain liquidation orders against companies they suspect of fraud. Of course, many are guilty as charged. But some are not.

There has been disquiet for some years in legal circles at the extent of HMRC’s power. Geraint Jones, QC, a barrister who has been involved in many high-profile tax cases, notes that, as it stands, the law allows HMRC to be “judge, jury and executioner” in its own case. But there are no plans to limit that power; HMRC argues it needs the power in order “to catch the bad guys”.

HMRC will not comment on individual cases, but they insist there are sufficient checks and balances because they have to apply to a judge for a liquidation order.

“We only use ex-parte applications in the most serious cases to deal with the risk of assets derived from fraudulent activity being hidden, or company books and records being destroyed,” said an HMRC spokesman.

“We set out to the Court why we think this approach is the right one. The granting of a provisional liquidation order is then a matter for the court alone.”

To which, Mr Hone responds: “When a judge was able to test HMRC’s evidence properly he found it was all rubbish. If there had been a proper test at the ex-parte hearing the liquidation order would never have been granted in the first place.”

In his view, HMRC’s ability to liquidate companies without robust evaluation of its evidence takes on a sinister quality. He thinks himself lucky not to have been flattened by the power of HMRC; others may not be so fortunate.

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Dedication

In memory of Fatty Arbuckle, a good and innocent man whose movie career as a comedian was ruined by an opportunistic prosecution. The woman he was accused of murdering almost certainly died of natural causes. He was eventually cleared but the damage was done.

A thought

I love the Mae West story where some judge wearing a robe during the middle of the day, and seated in a high chair peered down and asked her, 'Are you showing contempt for my court?' To which she replied, 'I’m doing my best not to show it, your honor.' Maybe we need to give up trying to not show it."